Getting out from under credit card debt

Credit card debt is a growing problem in the United States. Perhaps you are one of the many in Florida who carry a balance on multiple credit cards. You may find yourself using them more often for daily expenses or even paying other debts.

You are probably aware of the fact that most credit cards charge outrageous interest rates, so making minimum payments won’t get you very far. If you are close to the maximum limit allowed on your card, you may find that your monthly payment does little to reduce the amount you owe.

How credit cards can sink your budget

Paying down credit card debt is one of the first steps financial advisers recommend to people who are trying to lower their debt ratio. However, making the minimum payment is not going to achieve this goal.

In fact, it can take approximately 19 years to pay off a $5,000 balance by making only the minimum payment. This is because the minimum payment most credit card companies charge includes only about 1 percent of your total balance. The rest of the payment is interest and fees.

By the time you’ve paid off your $5,000 balance — provided you don’t continue to charge items to that care — you will have paid the credit card company about $11,000. Who has that much money to throw away?

A snowstorm of debt

On the other hand, making more than the minimum payment can reduce your balance quickly and potentially save you hundreds or thousands of dollars in interest. If you have more than one credit card, you can pay one off using this method, then apply that amount of money to the minimum payment on the card with the next highest balance. This is called the debt snowball method, and many people use this to pay off all their credit cards.

Similarly, this method prioritizes your credit cards according to the interest rates, paying off those with higher rates and working down to the cards charging lower interest. While it may not provide you with psychological satisfaction of paying off lower balances first, it will save you more money by eliminating those high interest fees.

When paying them off is not an option

If you have come to rely on credit cards to get through the week, or if you find yourself unable to make even the minimum payment, your situation may be too serious to fix with payment tricks. You may not even be able to come up with the extra money to apply to the minimum to get the ball rolling.

If this is the case, you may benefit from the advice of a bankruptcy lawyer. There are many options available to help people find debt relief when their finances are overwhelming. If you are lying awake at night worrying about money, receiving harassing calls from creditors, or getting threats of repossession or foreclosure in the mail, seek help.